Wednesday, 1 October 2008

The real risk of a hard rain falling?

I'm the man that architects hate. What I do for my clients is go through wonderfully aspirational design proposals and strip out the risk. You see, most architects are after one thing (after their fee) - the portfolio opportunity. They want the iconic photos for their practice portfolio taken just at the point of practical completion. To get them they'll ride roughshod over client budgets to create something different. The problem is, my clients don't want anything different. They want tried and tested, excellent value, low risk construction with maybe a little atrium with a few ficus in pots bolted on as a modest corporate welcome. So I strip out all the bespoke, experimental, non-standard, unproved little bits of architectural egoism in favour of familiar techniques, standard components, co-ordinating dimensions and off the shelf materials with short lead times. Then I let them bolt the little atrium on. Anyway, this preamble is by way of explaining that I can see risk.

I get in trouble from readers if this blog gets too apocalyptic, so instead I'll quote Nick Drew writing on Labour and Capital:

How bad do you think the current crisis is?

Until recently I would have said much worse than most people think (see my posts for the past 15 months passim) but now I’d say: as bad as can be realistically imagined. Fighting-in-the-streets bad.

We face this crisis with a number of other insecurities; unlike the US we have no national vehicle or heating fuel reserve to meet supply shocks. 60% of our imported gas comes through just two terminals, at Bacton and St Fergus. We have no strategic reserves of gas - when was the last time you saw a full gasometer? Our LNG supplies are dependent on weather systems, the activity of Algerian rebels and world spot markets. Only a downturn in OECD demand has lowered oil prices; small downwards production adjustments can still easily push the price up to $200, never mind a jihadist war in Saudi or a US / Israeli strike on Iran. Half our food is imported and dependent on harvests half way around the world and on global markets. Our ageing and failure-prone electricity supply is maxed out with no reserve capacity. Supermarkets carry at most a couple of days of food stocks and are dependent on just-in-time deliveries from the distribution depots. The south-east is still chronically short of water. Our shrunken and under-funded army is deployed abroad, and our stretched police forces are barely able to contain current levels of social disorder. If the UK was a building, I'd condemn it as unfit for secure use.

The property market is in a far worse state than most Londoners think, says a Dresdner Kleinwort analyst who this week returned to his Gresham Street eyrie in the City after a tour outside the capital where he found "carnage beyond even our most bearish expectations".

In a research note entitled It's Grim Up North, Alastair Stewart reports "a near-apocalyptic landscape" in the four cities he visited. He found the six leading property agents in Leeds have shifted just six flats in two months. He also picked up a scoop: an internal Barratt sales brochure in which the housebuilder marks down prices by up to 43%.

After talking to consultants and agents in Leeds, Birmingham, Manchester and Sheffield, he found "prices of urban apartments appear to have fallen in many cases by 40% to 50%, volumes have dried up to virtually zero, many developers have gone bust and land in many cases appears to be worthless". The situation, Stewart says, is "far worse than even the most candid builders have revealed". He concludes that listed firms are on the brink of profit warnings and a widespread breach of banking covenants.

He found "developers selling at virtually any price to shift flats and virtually all forthcoming new developments mothballed".

If the developers start falling and defaulting on their bank loans it may take even more tax capital to shore the banks up. There must be a temptation to allow the market to take its course and to allow a vulnerable bank to fall, but no certainty that it wouldn't lead to a domino collapse. And the risk of widespread social disorder.

Britain now has several million young men with no moral reference, no social restraints, that would prevent them from taking by force anything they want. So far its electronics and phones and iPods on the buses, on the streets and in the schools. The barbarians are no longer at the gates; they're inside the city.

Over a year ago an online friend, an ex Vulcan bomber pilot and accomplished yachtsman, described how a number of senior civil servants and military officers kept ocean going boats in the south-west fully stocked with supplies including water-makers, and ready for sea. This isn't 1940 and all-pull-together any more; it's sauve qui peut and the devil take the hindmost. The State's most highly paid functionaries, with access to true intelligence assessments of national risk, are ready to go.

My nose tells me the risk is higher than it's been in living memory - but it doesn't mean that catastrophic events are inevitable. But for someone like me who manages risk for a living, my anger at the incompetence and inaction, the vacuous imbecilic throwing of a trillion at lunatic social engineering schemes, the posturing, mendacity and empty rhetoric of this government, means that I'm determined, should we come through it, never to give these people the opportunity again to bring us so close to ruin.

8 comments:

I am not in denial, but I hope that it is not as bad as you say. I think the short-term situation could be salvaged with a big dose of tax and rate cuts. You are right about society, we have a generation or even two who have grown up thinking that everything will always be easy. How will those people react?

Serendipity abounds, I have also been blogging vaguely about what I do for a living and as it is insurance I also think I have an eye for risk. .... one risk is not having a job so I had better get on. Good post

IMHO Your nose is on the right track - but 'in living memory' smacks of classic English understatement. New Lab are certainly culpable in the 'moral reference' and ludicrous social engineering stakes mentioned, but such issues pale before the near perfect shit-storm now facing us. In light of a confluence of exponential trends, the graphs of which are all well into their vertical blow-off phases, I judge the likelihood of serious social breakdown and violent disorder in this country to be close to 100%.

I get a sense of near total unreality reading the likes of Guido and Ian Dale (and other 'Westminster Village') blogs these days - let alone the main-stream media which is worse than useless. Applied to current political discourse, 'Rearranging the deck chairs on the Titanic' is another English understatement, but it does hint at the near total lack of attention being paid to the epoch-defining issues facing us - All of which are well understood by the string pullers of whatever politicians happen to be 'in power' but which the 'Deep State' deems verboden to air honestly in public. Equivocate, mislead, ridicule and keep the sheeple occupied with trivia is the order of the day - and when they get restless, add regular doses of irrational outraged fear at a manufactured external (or internal) enemy).

The latest example of the sort of thing I'm talking about here is the decision to press ahead with a 'Nuclear renaissance' as the solution to our energy problem when the plain fact is that there is no 'solution' short of a radically altering the 'happy motoring/flying perpetual exponential growth of everything on a finite planet' lifestyles that have become unquestionable articles of faith in the western world.

And don't forget to look at this for an insight into the mind-boggling amount of diesel fuel and four years of excavation required just to get down to the West's 'best hope' uranium ore in Australia - and that before they produce a single pound of the stuff.

as a risk-manager of a different kind I would simply add that we don't need to predict the worst case will definitely happen: we just need to be able to paint the scenario with enough credibility to be sure we want to prevent it

(even at some cost)

we are in Extremistan, to use Taleb's coinage, and we need to recognise it

- - - (PS, a nitpicker writes, gasometers are not strategic storage they are a local pressure-buffer. The amount of capacity in all the gasometers plus the entire pipe network equates to one day's supply)

On design, once had the architects put a hole in the floor of the 3rd floor "to let people look through and embrace the excitement of the shopping area of the floor below"

When explained that they might fall through.."We will put a barrier around it"

and when explained that the barrier to be effective would prevent people looking down, "we will put a great glass circle instead"

The cost was astronomical. Safety glass, toughened, heel proof, scratch proof, slip proof, water proof etc. Eventually the hole was reduced from about a 15ft diameter to about 4ft to ease costs and after much work the glass circle was installed.

After a few days of complaints of teens below,taking pictures up the shirts of the girls above it was covered with some MDF and held down with yellow warning gaffer tape for about 6 months, before being covered over with the, no doubt overly familiar to you, aluminium cladding.

A strange alloy circle seen from below and a strange slightly raised easy to trip on area above.

For a classic example of adventurous architecture, try the Materials Science Department in Cambridge. Built in a small plot in a University site, each succesive storey is (cunningly) larger than the one beneath by about 6 feet in each direction. Hence the labs on the top floor have plenty of space.

I hope the architect took his pictures quickly. Now, some decades on, it is looking a bit grimy. You see, no-one has yet thought of an economic way of cleaning the windows...

I've been counselling everybody I now to follow Robert De Niro's advice in HEAT - "Don't have anything in your life you can't walk away from in fifteen minutes if you see the heat coming around the corner".

Not literally. But flexibilty combined with an escape route are paramount just in case things explode. Personally, my plan is:

1) Rent don't own2) Have everything in instant access cash3) A recently renewed passport4) A stable country that will let you in (and a knowledge of their language)

I could be in Japan within 24 hours if I had to be, with all of my assets following within a day or two. I hope it never comes to that, but if the UK turns into Mad Max II I'd rather read about it in the Japan Times than live it.

I work as a project manager, and like you see the tantrums and artistic side of too many architects on a daily basis, this coupled with the plethora of underemployed civil servants in post to thwart perfectly viable projects has made me decide a number of years ago to work overseas.

Sadly I do not see 'fighting in the streets' I wish that I did, I trained as a historian, and whilst Europe burned in 1848, we had a petition. The English are largely into tutting a lot than manning the barricades.

From this afternoons performance from Cameron I see nothing that would stop me from my medium term plan to move everything abroad.

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